Regulators Express Doubts On California Savings Deal

By RICHARD W. STEVENSON, Special to the New York Times

Published: February 25, 1989

LOS ANGELES, Feb. 24—
Regulatory officials say they have growing doubts that the American Continental Corporation's deal to sell its Lincoln Savings and Loan subsidiary will be completed.

American Continental's chairman, Charles H. Keating Jr., has been one of the most aggressive proponents of using federally insured deposits for activities that, while generally permitted by California's liberal regulations, are deemed too risky by many regulators.

Since acquiring Lincoln in 1984, Mr. Keating has used the savings and loan to invest in real estate development, securities including high-yield ''junk bonds,'' currency trading and other activities far afield from the deposit-taking and mortgage-lending business that savings institutions have traditionally pursued. Lincoln, based in Irvine, Calif., currently has $6.5 billion in assets.

After a long, sometimes bitter battle with the Federal Home Loan Bank Board, Mr. Keating declared in late December that he had agreed to sell Lincoln to a group headed by Spencer Scott, a longtime California savings executive.

But regulatory officials said that Mr. Scott appears to have encountered problems arranging sufficent financing for the deal and that the deal was also being jeopardized by Lincoln's weakening financial position. Mr. Scott's group had said it would inject $50 million in new capital into the institution, which it planned to acquire in a complex swap of preferred stock.

Mr. Scott did not return telephone calls. Patricia Johnson, a spokeswoman for the Phoenix-based American Continental, said that she had ''no specific knowledge of anything going wrong.''

But Ms. Johnson acknowledged that rumors of a collapse of the deal had driven American Continental's stock price down. The stock closed at $4.50 a share today, down 12.5 cents, in over-the-counter trading after losing 87.5 cents on Wednesday. It traded at more than $10 a share after the announcement of the proposed sale in December and at more than $7 a share as recently as two weeks ago.

Regulatory officials said that Mr. Scott's application to the California Department of Savings and Loans for approval of the sale had been incomplete. California officials declined to elaborate, but Federal officials said they had serious doubts that it would ever be completed.